QROPS in Australia - Jason O'Connell - Financial life planner

Jason O'Connell

QROPS in Australia

Are you looking for advice on QROPS in Australia?

If you’re an expat thinking about retiring in Australia, then you may have heard about QROPS.

Here’s a quick overview of the most frequent questions that Jason gets asked about QROPS in Australia.

What is a QROPS?

A Qualifying Recognised Overseas Pension Scheme, or QROPS, is an overseas pension scheme registered with HMRC which is eligible to receive transfers of UK pension funds. The requirements are set by HMRC and a QROPS must have a beneficial owner and trustees.

If you transfer your pension fund to a scheme that doesn’t meet the QROPS requirement, you’ll most likely regret it: UK tax charges are usually 55% and there may be a 15% charge associated with the scheme administrator.

What's the difference between a QROPS and a Superannuation Fund (Super)?

You’re looking at the same thing from two different perspectives.

A super is Australia’s rough equivalent of a pension fund. So the goal is to move your UK pension to a super in Australia.

The issue is, if that super doesn’t comply with HMRC’s rules for QROPS, you’ll lose a lot of money in tax.

You can find a list of Australian supers that say they meet the HMRC QROPS requirements, but this listing doesn’t come with HMRC approval and the responsibility of ensuring compliance with HMRC’s QROPS rules lay with the trustees of the receiving scheme, which in many cases in Australia, is the member.

Do you need to be over 55 to get a QROPS transfer?

Yes.

One of HMRC’s QROPS requirement issues is that you can’t access the funds until you’re 55.  However, most Australian supers will allow specific circumstances, such as hardship, where you can get early access to your funds. 

You can read more about this on the UK pensions transfer page for more details about early access to supers. 

With a QROPS 55+, the age is limited to people over 55, making them meet the requirements.

Do you need to use a QROPS in Australia?

No. You can leave your funds in your British pension account, but what you withdraw as an Australian resident will be taxed – at your high marginal rate of income tax in Australia, as dictated by the double taxation agreement.

What are the benefits of using a QROPS in Australia?

Main benefit 1: No currency risk

The majority of UK pension schemes can only be held in GBP and don’t let you invest in or hold assets or funds in another currency.

This exposes you to forex fluctuations in the GBP – AUD exchange rate. 

Over the past 50 years – not too long a time when it comes to retirement planning – the rate has been as high as $3.00 and as low as $1.31.

This isn’t great when you’re seeking stability and certainty from your main income source, and it’s what Jason refers to as an ‘unnecessary uncertainty’ on the spending power of an individual’s retirement income. 

Note: If you’re under 55, planning on retiring in Australia and aiming to mitigate this risk, then there are a select number of specialist UK pension schemes you can use. They are available to individuals residing outside of the UK offering the option to exchange from GBP to AUD and invest in AUD-denominated investments funds and assets. 

So when you transfer to a QROPS your pension is denominated, invested and paid in Australian dollars: there’s no chance of currency exchange losses. 

Main benefit 2: Tax

QROPS in Australia also offers greater tax efficiency and increased flexibility of pension income.

Of course, this can get complicated. The Applicable Fund Earnings (AFE) tax may apply to the transfer of your pension to a super. And the rate of tax could be anywhere between 15% and 47%, including the medicare levy, depending on whether you elect for an Australian QROPS to pay the AFE, or as an individual tax payer

There is no one-size-fits-all. It could well be that the most effective tax outcome for you may involve transferring part of your UK pensions to a QROPS in Australia, and drawing some directly from a UK pension scheme too.

So clearly, it is important to seek advice from an adviser who is experienced in transferring foreign superannuation schemes such as UK pensions to Australia, to ensure the best outcome for you and your retirement. 

After the initial transfer, drawing income from an Australian Superannuation scheme, including QROPS registered schemes, where the member meets a condition of release – ATO, is usually tax free.  

Other QROPS in Australia benefits

  • Testing against the falling Lifetime Allowance now
  • Transferring tax rights to Australia
  • Flexible access to meet your individual retirement goals
  • Access to investment strategies, such as Australian investments
  • Increasing spouse’s pension and providing a legacy for your beneficiaries of choice
  • Freedom to work with an Australian-based adviser with the expertise on retiring with both UK and Australian retirement savings
  • Early or deferred retirement from a defined benefit (final salary) scheme, potentially increasing tax efficiency depending on your circumstances
  • Protection against UK creditors

Things to be mindful of when considering transferring your UK pension(s) to a QROPS in Australia

Overseas Tax Charge

We’re not done with tax yet…

In 2017, the UK introduced a 25% tax charge on transfers to QROPS. It’s applied if:

  • The member has not given the scheme administrator the required prescribed information before the transfer is made (see PTM102900 – HMRC), or
  • None of the five exclusion conditions set out at (PTM102300 – HMRC) are met.
    – Member resident in same country as QROPS
    Member and QROPS in UK or EEA
    – QROPS is an occupational pension scheme
    – QROPS set up by an international organisation
    – QROPS is an overseas public service scheme

Even if you’re exempt at the outset, the charge will apply if your circumstances change within five years to the extent that none of the exceptions apply. 

Equally, the charge can be refunded if exceptions are met over the next 5 years.

Can you transfer a state pension to a QROPS?

No. Only company and personal pensions can be transferred to a QROPS. However the UK state pension is contributory based, unlike the Australian Age Pension which means tested.

How much pension can you transfer to an Australian QROPS?

QROPS transfers to superannuation schemes usually have 2 steps::

  • Step 1 calculates the AFE where the growth and tax liability are firstly transferred to a QROPS. 
  • Step 2 involves transferring the balance of the superannuation scheme as non-concessional transfers. 

The current annual non-concessional allowance is $100,000. 

The UK pension transfer can breach your non-concessional allowance and balance cap, so
careful planning is required to ensure the best outcome given your individual
circumstances. If you’re under 65, there’s a bring-forward rule of $300,000 over
a 3-year period. 

 

How much you can transfer depends on these limitations and how they apply to your circumstances. 

Furthermore, there’s also a transfer balance cap – ATO . This limits how much superannuation you can move from your accumulation superannuation account to a tax-free ‘retirement phase’ account. 

Until 1st July 2021 everyone has a personal transfer balance cap of $1.6 million. 

After this date, you’ll have a personal transfer balance cap of between $1.6 million and $1.7 million. 

If you meet your total super balance cap at the time of retirement, you won’t be able to make any further non-concessional contributions to super. Any super monies you have in your retirement income account is included towards this threshold.

If you exceed these caps, or you are currently (or likely) to have tax-relieved UK pension savings in excess of the UK lifetime allowance (standard in the 2020/21 UK tax years is £1,073,000, indexed annually) then more complex strategies, utilising a combination of different draw down methods in the UK are available.

Jason has successfully tailored plans around clients’ personal circumstances and objectives, which can involve private binding rulings from the ATO and UK tax advice to provide certainty on the validity of such strategies.

 

Can you transfer a QROPS in Australia back to the UK?

No, you can’t.

In order access your QROPS fund in Australia without excessive tax liabilities, you will need to meet a condition of release. The only country it is possible to transfer an Australian QROPS to is New Zealand – and only when a number of conditions are met.

Information on this website is general advice and does not take into account your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances.

Are you looking for advice on QROPS in Australia?

If you’re an expat thinking about retiring in Australia, then you may have heard about QROPS.

Here’s a quick overview of the most frequent questions that Jason gets asked about QROPS in Australia.

What is a QROPS?

A Qualifying Recognised Overseas Pension Scheme, or QROPS, is an overseas pension scheme registered with HMRC which is eligible to receive transfers of UK pension funds. The requirements are set by HMRC and a QROPS must have a beneficial owner and trustees.

If you transfer your pension fund to a scheme that doesn’t meet the QROPS requirement, you’ll most likely regret it: UK tax charges are usually 55% and there may be a 15% charge associated with the scheme administrator.

What's the difference between a QROPS and a Superannuation Fund (Super)?

You’re looking at the same thing from two different perspectives.

A super is Australia’s rough equivalent of a pension fund. So the goal is to move your UK pension to a super in Australia.

The issue is, if that super doesn’t comply with HMRC’s rules for QROPS, you’ll lose a lot of money in tax.

You can find a list of Australian supers that say they meet the HMRC QROPS requirements, but this listing doesn’t come with HMRC approval and the responsibility of ensuring compliance with HMRC’s QROPS rules lay with the trustees of the receiving scheme, which in many cases in Australia, is the member.

Do you need to be over 55 to get a QROPS transfer?

Yes.

One of HMRC’s QROPS requirement issues is that you can’t access the funds until you’re 55.  However, most Australian supers will allow specific circumstances, such as hardship, where you can get early access to your funds. 

You can read more about this on the UK pensions transfer page for more details about early access to supers. 

With a QROPS 55+, the age is limited to people over 55, making them meet the requirements.

Do you need to use a QROPS in Australia?

No. You can leave your funds in your British pension account, but what you withdraw as an Australian resident will be taxed – at your high marginal rate of income tax in Australia, as dictated by the double taxation agreement.

What are the benefits of using a QROPS in Australia?

Main benefit 1: No currency risk

The majority of UK pension schemes can only be held in GBP and don’t let you invest in or hold assets or funds in another currency.

This exposes you to forex fluctuations in the GBP – AUD exchange rate. 

Over the past 50 years – not too long a time when it comes to retirement planning – the rate has been as high as $3.00 and as low as $1.31.

This isn’t great when you’re seeking stability and certainty from your main income source, and it’s what Jason refers to as an ‘unnecessary uncertainty’ on the spending power of an individual’s retirement income. 

Note: If you’re under 55, planning on retiring in Australia and aiming to mitigate this risk, then there are a select number of specialist UK pension schemes you can use. They are available to individuals residing outside of the UK offering the option to exchange from GBP to AUD and invest in AUD-denominated investments funds and assets. 

So when you transfer to a QROPS your pension is denominated, invested and paid in Australian dollars: there’s no chance of currency exchange losses. 

Main benefit 2: Tax

QROPS in Australia also offers greater tax efficiency and increased flexibility of pension income.

Of course, this can get complicated. The Applicable Fund Earnings (AFE) tax may apply to the transfer of your pension to a super. And the rate of tax could be anywhere between 15% and 47%, including the medicare levy, depending on whether you elect for an Australian QROPS to pay the AFE, or as an individual tax payer

There is no one-size-fits-all. It could well be that the most effective tax outcome for you may involve transferring part of your UK pensions to a QROPS in Australia, and drawing some directly from a UK pension scheme too.

So clearly, it is important to seek advice from an adviser who is experienced in transferring foreign superannuation schemes such as UK pensions to Australia, to ensure the best outcome for you and your retirement. 

After the initial transfer, drawing income from an Australian Superannuation scheme, including QROPS registered schemes, where the member meets a condition of release – ATO, is usually tax free.  

Other QROPS in Australia benefits

  • Testing against the falling Lifetime Allowance now
  • Transferring tax rights to Australia
  • Flexible access to meet your individual retirement goals
  • Access to investment strategies, such as Australian investments
  • Increasing spouse’s pension and providing a legacy for your beneficiaries of choice
  • Freedom to work with an Australian-based adviser with the expertise on retiring with both UK and Australian retirement savings
  • Early or deferred retirement from a defined benefit (final salary) scheme, potentially increasing tax efficiency depending on your circumstances
  • Protection against UK creditors

Things to be mindful of when considering transferring your UK pension(s) to a QROPS in Australia

Overseas Tax Charge

We’re not done with tax yet…

In 2017, the UK introduced a 25% tax charge on transfers to QROPS. It’s applied if:

  • The member has not given the scheme administrator the required prescribed information before the transfer is made (see PTM102900 – HMRC), or
  • None of the five exclusion conditions set out at (PTM102300 – HMRC) are met.
    – Member resident in same country as QROPS
    Member and QROPS in UK or EEA
    – QROPS is an occupational pension scheme
    – QROPS set up by an international organisation
    – QROPS is an overseas public service scheme

Even if you’re exempt at the outset, the charge will apply if your circumstances change within five years to the extent that none of the exceptions apply. 

Equally, the charge can be refunded if exceptions are met over the next 5 years.

Can you transfer a state pension to a QROPS?

No. Only company and personal pensions can be transferred to a QROPS. However the UK state pension is contributory based, unlike the Australian Age Pension which means tested.

How much pension can you transfer to an Australian QROPS?

QROPS transfers to superannuation schemes usually have 2 steps::

  • Step 1 calculates the AFE where the growth and tax liability are firstly transferred to a QROPS. 
  • Step 2 involves transferring the balance of the superannuation scheme as non-concessional transfers. 

The current annual non-concessional allowance is $100,000. 

The UK pension transfer can breach your non-concessional allowance and balance cap, so
careful planning is required to ensure the best outcome given your individual
circumstances. If you’re under 65, there’s a bring-forward rule of $300,000 over
a 3-year period. 

How much you can transfer depends on these limitations and how they apply to your circumstances. 

Furthermore, there’s also a transfer balance cap – ATO . This limits how much superannuation you can move from your accumulation superannuation account to a tax-free ‘retirement phase’ account. 

Until 1st July 2021 everyone has a personal transfer balance cap of $1.6 million. 

After this date, you’ll have a personal transfer balance cap of between $1.6 million and $1.7 million. 

If you meet your total super balance cap at the time of retirement, you won’t be able to make any further non-concessional contributions to super. Any super monies you have in your retirement income account is included towards this threshold.

If you exceed these caps, or you are currently (or likely) to have tax-relieved UK pension savings in excess of the UK lifetime allowance (standard in the 2020/21 UK tax years is £1,073,000, indexed annually) then more complex strategies, utilising a combination of different draw down methods in the UK are available.

Jason has successfully tailored plans around clients’ personal circumstances and objectives, which can involve private binding rulings from the ATO and UK tax advice to provide certainty on the validity of such strategies.

Can you transfer a QROPS in Australia back to the UK?

No, you can’t.

In order access your QROPS fund in Australia without excessive tax
liabilities, you will need to meet a condition of release. The only country it
is possible to transfer an Australian QROPS to is New Zealand – and only when a
number of conditions are met.

Information on this website is general advice and does not take into account your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances.

Get professional advice

The above information offers an overview of some of the key things to consider when looking into QROPS.

 Evidently, it can be a difficult process to navigate, especially for higher value pensions. Using a qualified and experienced financial advisor is highly recommended to help you get the most out of your QROPS transfer.

You can speak to Jason about your concerns today.

Contact Jason O'Connell

Get professional advice

The above information offers an overview of some of the key things to consider when looking into QROPS.

Evidently, it can be a difficult process to navigate, especially for higher value pensions. Using a qualified and experienced financial advisor is highly recommended to help you get the most out of your QROPS transfer.

You can speak to Jason about your concerns today.